August 18, 2010
Office of The Attorney General
– Paula T. Dow, Attorney General
– Andrew Sidamon-Eristoff, Treasurer
Media Inquiries-
Paul Loriquet (OAG)
609-292-4791
Andrew Pratt (Treas.)
609-984-6493
Citizen Inquiries-
609-292-4925
State of New Jersey Resolves Three Year Inquiry by The U.S. Securities and Exchange Commission in Connection With Bond Offerings Between 2001 and 2007
TRENTON – The Office of the Attorney General and the Department of the Treasury announced today that the State of New Jersey (the “State”) resolved a three year fact finding inquiry conducted by the U.S. Securities and Exchange Commission (the “S.E.C.” or the “Commission”) that was initiated in April 2007 in connection with the State’s offer and sale of general obligation bonds and State-contract bonds (the “Bonds”). The focus of the S.E.C. inquiry was on the disclosure of information concerning the State’s pension funds in the offering statements for the Bonds. The State fully cooperated with the S.E.C. during its inquiry.
In reaching the resolution with the State, the Commission instituted administrative proceedings and imposed a cease-and-desist order (the “Order,” attached) wherein it credited the State’s cooperation in the Commission’s inquiry, as well as the remedial measures instituted by the State to ensure compliance with its disclosure obligations under the federal securities laws. Under the terms of the Order, the State was not required to pay any civil fines or penalties. While the State did not admit or deny the S.E.C.’s findings in the Order, it agreed not to commit or cause any future violations of Section 17(a)(2) and 17(a)(3) of the Securities Act of 1933.
According to the Order, the S.E.C. found that between August of 2001 and April 2007, a period in which the State issued over $26 billion in Bonds in approximately 79 offerings, the State acted negligently in failing to adequately disclose in its bond offering documents information concerning two pension plans, namely, the Teachers’ Pension and Annuity Fund (“TPAF”) and the Public Employees’ Retirement System (“PERS”). During that time-frame, among other things, the Commission found that the State did not adequately disclose information relating to legislation adopted in 2001 (the “2001 Legislation”) which increased retirement benefits for employees and retirees in TPAF and PERS. The Commission also found that the State did not make adequate disclosure of the use of the benefit enhancement funds (the “BEFs”) which were created by the 2001 Legislation to fund the costs associated with the increased benefits, but were used as a credit against the State’s funding contributions to the pension plans for Fiscal Years 2004 through 2006. Furthermore, the Commission found that the State did not make adequate disclosure about the use of a “phase-in plan” beginning in Fiscal Year 2004 for the State’s contributions to TPAF and PERS.
Immediately following the initiation of the S.E.C.’s inquiry into the financial disclosure practices of the State’s bond offerings in April 2007, the State disclosed the S.E.C.’s inquiry in subsequent bond disclosure documents. Also, the State undertook substantial remedial measures, which are outlined in the S.E.C.’s Order. These remedial measures included the engagement of outside disclosure counsel beginning in Spring 2007 to advise the State on an on-going basis regarding its disclosure obligations under the federal securities laws. Upon engagement, disclosure counsel assisted the State in updating and clarifying the pension disclosures appearing in the bond offering documents. The State also improved its disclosure process by instituting formal, written policies and procedures. These policies and procedures included, among other things, establishing a committee comprised of senior Treasury Department officials, representatives from the Attorney General’s office, and outside disclosure counsel to oversee the entire disclosure process and to review and make recommendations regarding the State’s disclosures and disclosure practices. Additionally, the State implemented an annual mandatory training program for the employees involved in the disclosure process to ensure compliance with the State’s disclosure obligations under the federal securities laws.
From the initiation of the S.E.C.’s inquiry to the present, no rating agency has lowered the State’s credit rating and the State has continued to make all required debt service payments on the Bonds.
The resolution of the matter with the S.E.C. was handled on behalf of the State by Executive Assistant Attorney General Marc-Philip Ferzan; Director of the Division of Law, Robert M. Hanna; and Susan K. Fischer, Assistant Attorney General in the Division of Law. The State was also represented by the law firm of Fried, Frank, Harris, Shriver & Jacobson LLP from the inception of the S.E.C.’s inquiry.
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